Nov. 26 (Bloomberg) -- Goldman Sachs Group Inc., the No. 1
stock underwriter in Europe, turned down roles in offerings by
banks in Spain and Italy this year, the only top U.S. securities
firm not to take part in the fundraisings by southern European
lenders as the region’s debt crisis stretches to a fourth year.

The firm declined a role in Banco Popular Espanol SA’s 2.5
billion-euro ($3.2 billion) rights offering this month because
it wanted greater protection to avoid potential losses on the
sale, two people familiar with the talks said. JPMorgan Chase &
Co. and Morgan Stanley are helping to guarantee the deal.
Goldman also didn’t underwrite this year’s share sales by
Italy’s UniCredit SpA and Portugal’s Banco Espirito Santo SA,
which drew Bank of America Corp. and Citigroup Inc.

Goldman Sachs, which got 55 percent of its revenue this
year from sales and trading, is passing on underwriting fees
that could be at risk should the stock drop, as happened with
insurer Fondiaria-SAI SpA this year. Goldman Sachs President and
Chief Operating Officer Gary D. Cohn said a month ago that he
sees only a “small” probability that the euro area will stick
together, while the firm’s equity strategists are warning
investors to be wary of companies that rely on southern Europe.

“Goldman can choose to be selective and make strategic
choices about which deals they want to be in,” said Christopher
Wheeler, a bank analyst at Mediobanca SpA in London and former
equity capital markets banker. Its market position will allow
the firm to return to those clients if it chooses, he said.

Capital Shortfall

Goldman Sachs, which held talks with Popular about managing
the offering, had sought to underwrite it at a lower price to
lure more investors and limit the risk to the sale managers,
said a person with knowledge of the situation, who declined to
be identified because the talks were private.

“Decisions around underwriting a particular transaction
are always based on the circumstances specific to that
situation, rather than a general view around markets, sectors or
geographies,” Goldman Sachs said in an e-mailed statement. “We
cannot comment on transactions where we didn’t play a role, but
we remain committed to helping clients throughout Europe to
raise capital, manage risk and grow their businesses.”

Officials at Madrid-based Popular declined to comment.
Spain’s sixth-biggest lender is selling shares to cover a
capital shortfall and avoid taking aid from the state. It’s
offering shares at 40.1 euro cents, a 32 percent discount to the
price on Nov. 9, the last trading day before the price was set,
excluding the value of the rights.

The shares rose 0.7 percent to 55.4 cents at 11:30 a.m. in
Madrid today. Investors can order stock through Nov. 28.

Rights Offers

Goldman Sachs has a 17 percent share of stock underwriting
in Europe, excluding rights offerings such as the banking
recapitalizations, data compiled by Bloomberg show. In rights
offers, companies give existing investors the opportunity to buy
stock first, typically at a discount to the market price. The
offerings can last weeks as companies prepare prospectuses and
give investors time to sell their rights or buy shares.

The U.S. bank also sought more in fees than Popular was
prepared to pay, according to another person. Banks will earn a
commission of 2.5 percent on the 2.1 billion euros of stock they
have guaranteed, or about 52 million euros, the offering
document shows. Popular may pay an additional 1 percent, or 21
million euros, at its own discretion.

Daragh Quinn and Duncan Farr, analysts at Nomura
International, said the Popular offering may indeed be priced
too high given the outlook for the troubled Spanish economy.
Popular has said it expects to book a loss of 2.3 billion euros
this year as it speeds up recognition of loan losses, and plans
to generate earnings of 1.4 billion euros in 2014.

UniCredit Scare

“While this is a low valuation, we do not believe that it
is attractive enough given our outlook for low returns,” the
analysts wrote in a Nov. 12 report.

The Bloomberg Europe 500 Banks and Financial Services
Index, which tracks 38 firms, has gained about 17 percent this
year, though only nine of its members are valued at more than
their book value. The more troubled banks have struggled to
attract investors as bad loans grow and they buy more debt from
their own sovereigns.

Goldman Sachs didn’t take part in the largest stock sale by
a bank in the region this year, the 7.5 billion-euro rights
offer by UniCredit in January. That deal gave its underwriters a
scare as the stock plunged 45 percent in the four days after the
bank announced the sale, reaching a 23-year low. The price later
recovered as the European Central Bank’s pledge to support banks
with cheap money rekindled investor appetite.

Goldman Sachs was also absent from the 1 billion-euro
offering from Espirito Santo, Portugal’s biggest bank by market
value.

Fondiaria-Unipol

Five financial companies from southern Europe raised money
from shareholders this year. Goldman Sachs wasn’t asked to
participate in two of those because of perceived conflicts of
interest by the client, said a person briefed on the talks.

The New York-based firm advised on the merger of Italian
insurers Fondiaria-SAI and Unipol Gruppo Finanziario SpA, while
seven other banks underwrote their offerings. Those firms, which
included Credit Suisse Group AG and Deutsche Bank AG, initially
found buyers for less than half of what they underwrote, leaving
them at risk of losses.

The banks charged fees of at least 4.5 percent, providing
the firms with 55 million euros to cover any trading losses.

“For much of the past year Goldman has adopted a fairly
risk-averse stance, generally reducing trading value-at-risk,
and comments from management have been cautious,” said Richard
Staite, an analyst at Atlantic Equities LLP in London with a
neutral rating on Goldman.

Cohn, Blankfein

The ECB’s pledge of unlimited support for debt-burdened
nations in exchange for reforms hasn’t addressed the lack of
growth that plagues the region, Cohn, 52, said in an interview
in Tokyo last month. Goldman Sachs still sees opportunity in
Europe to advise clients on purchases of bank assets, he said.

Chief Executive Officer Lloyd C. Blankfein echoed those
remarks on Nov. 13 in a speech at a Bank of America Corp.
conference in New York. He said growth “issues” are still
holding back the region, according to a Bloomberg transcript of
his remarks.

Goldman Sachs has still increased its overall bet on Spain.
The firm’s potential losses from market price swings in the
country rose to $800 million at the end of September from
negative $271 million at the end of June, according to a filing
with the Securities and Exchange Commission made public on Nov.
8. The equivalent figure for Italy was negative $1.4 billion,
compared with negative $980 million in June.

Monte Paschi Loss

This year, Goldman Sachs has managed offerings of shares
from non-financial companies in the region including Italy’s
Luxottica SpA and Snam SpA as well as Spain’s Amadeus IT Holding
SA and Repsol SA, data compiled by Bloomberg show.

Today, Goldman Sachs is helping manage the sale of about
740 million pounds ($1.2 billion) of shares in Barclays Plc,
Britain’s second-largest bank, as part of Qatar Holding LLC’s
disposal of warrants in the lender.

In the past two years, the firm has increased the number of
its client relationships in Europe by nearly 20 percent,
according to Blankfein.

The U.S. firm had lost money on a sale of Monte Paschi
stock on behalf of its controlling shareholder in June 2011
after the shares plummeted, according to a person familiar with
the transaction. The bank’s shares have since fallen by more
than half amid a capital shortfall as the lender awaits its
second bailout in three years.

“If it was all completely negative, people could adjust to
that; all positive, could adjust to that,” Blankfein, 58, said
of markets on Nov. 13. “I’m saying, uncertainty is the big
killer because there is a substantial risk that things can go
wrong, and that there’s a substantial risk that things could
break to the high side.”